While the TSX index is trading near all-time highs, one quality Canadian company trades at an attractive valuation, positioning the stock to deliver outsized returns to shareholders in the next 12 months. Here is why Cargojet (TSX:CJT) is a top TSX stock you can consider buying with just $500.
Is the TSX stock undervalued?
Valued at $2.2 billion by market cap, Cargojet provides time-sensitive air cargo services. Its air cargo business includes operating domestic air cargo network services between multiple cities in North America. The company also offers aircraft to customers on an ad-hoc charter basis between points in Canada, the U.S., and other international destinations. Moreover, it is involved in flight planning and dispatch, crew planning and training, ground handling, and commercial airline cargo management businesses.
Cargojet stock went public in early 2011 and has returned more than 2,000% to shareholders in dividend-adjusted gains. Despite its outsized gains, CJT stock trades 45% below all-time highs, allowing you to buy the dip and gain exposure to a quality company at a lower multiple.
Cargojet increased its sales from $487 million in 2019 to $980 million in 2022. However, the top line declined to $877.5 million in 2023 due to a challenging macro environment and sluggish consumer spending.
Analysts tracking Cargojet expect sales to rise 11.4% to $978 million in 2024 and 6.3% to $1.04 billion in 2025. Notably, adjusted earnings are forecast to expand from $2.06 per share in 2023 to $4.44 per share in 2024 and $5.72 per share in 2025. So, priced at 23.8 times forward earnings, CJT stock is attractively valued, given its growth estimates.
Analysts remain bullish and expect the TSX stock to surge over 20% in the next 12 months.
A strong performance in Q2 of 2024
Despite macro headwinds, Cargojet’s business mix has allowed it to grow revenue in the first half of 2024. In recent months, it has capitalized on the opportunity to service the fast-growing China-based e-commerce brands with a three-year scheduled charter service agreement with Great Visions HK Express to fly products between China and Canada.
While global e-commerce supply chains are changing, Cargojet is at the forefront of identifying emerging opportunities. Its domestic network revenue rose by 10.8%, while the all-in charter business posted a record growth of 23.4% in the June quarter. Its total sales grew by 11.5% year over year.
Cargojet has a long-term capital-allocation strategy that aims to maintain dividend growth, invest in growth opportunities, and maintain a conservative balance sheet. It expects to invest between $40 million and $50 million in growth capital expenditures in 2024, which should drive future cash flow and earnings higher.
Cargojet pays shareholders an annual dividend of $1.40 per share, which translates to a forward yield of 1%. Additionally, these payouts have more than doubled in the last eight years. Its quarterly dividend expense is around $5.7 million, while Cargojet reported a free cash flow of $68 million in the last two quarters, indicating a payout ratio of less than 20%.
The Foolish takeaway
Cargojet stock remains a top investment choice in 2024, given its steady revenue growth, widening earnings base, and growing dividend payout.
